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The UK economy experienced a sharp slowdown in the second quarter of 2025, as official statistics verified growth of merely 0.3% between April and June, a significant reduction from the 0.7% increase in the first quarter.
Data from the Office for National Statistics (ONS) indicated that while the latest quarterly figure remained unchanged, revisions to earlier projections imply that growth throughout much of 2024 was stronger than previously anticipated, even as momentum diminished heading into this year.
The ONS stated that annual GDP growth for 2024 persisted at 1.1%, but quarterly revisions rendered a more intricate picture. The first-quarter growth last year was adjusted down from 0.9% to 0.8%, while following quarters were modified upwards: Q2 from 0.5% to 0.6%, Q3 from stagnant to 0.2% growth, and Q4 from 0.1% to 0.2%.
Liz McKeown, ONS director of economic statistics, stated: “These new figures reveal that the economy expanded a bit less vigorously at the beginning of last year than initial estimates indicated, but performed better in subsequent quarters. Quarterly growth rates for 2025 are unchanged.”
Household disposable income per individual increased by 0.2% in Q2, recovering from a 0.9% decline in Q1, propelled by a £4.4 billion surge in wages and a £4 billion decrease in income tax obligations related to the 2023-24 tax year.
Nevertheless, households opted to save a greater portion of that income, with the savings ratio advancing to 10.7% from 10.5%, signaling heightened consumer prudence. Growth in spending remained stagnant, while consumer-oriented services encountered a slight decline in output despite overall services growth of 0.4%.
Thomas Pugh, chief economist at RSM UK, remarked: “The rise in the savings ratio indicates that consumers became more cautious in the second quarter. The critical question now is whether speculation regarding the Budget will further erode confidence.”
The ONS figures disclosed a more restrained picture in some sectors. Production output declined by 0.8%, a more significant contraction than the 0.3% initially reported. Construction output rose by 1%, although this was adjusted down from 1.2%. Services, the largest sector of the economy, grew by an unchanged 0.4%.
Forecast for the latter half of 2025
Economists remain wary about prospects for the remainder of the year. Increasing inflation, slowing wage growth, and anticipations of further tax hikes in the autumn Budget are likely to constrain activity.
Matt Swannell, chief economic adviser at EY Item Club, noted that growth is expected to remain “lethargic”: “Alongside pressured real income, additional tax increases in the autumn Budget appear almost certain.”
With interest rate reductions now regarded as less probable in 2025, analysts propose that the UK economy confronts a more challenging environment in the latter half of the year, with households tightening expenditure as uncertainty regarding fiscal policy escalates.
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